Adam Bandt (Melbourne, Australian Greens) Share this | Hansard source

The health and success of a society is best judged by the level of equality between its citizens. The gap between the rich and poor, the extent to which someone profits from the labour of others and the capacity of someone to reap enormous wealth at the expense of the Commonwealth have always been a measure of a sustainable and stable society. During the first three-quarters of the 20th century, Australia, like much of the developed world, was narrowing the gap between the highest and lowest incomes. The 1970s were the high point with the gap between rich and poor at its smallest perhaps in centuries, but since then the gap has been growing again, with most of the positive trends of the 20th century wiped out.

Using the Australian Bureau of Statistics we can examine the income distribution between households. If disposable income was equally distributed between households, the bottom 20 per cent of households would have 20 per cent of total income and the top 20 per cent of households would also have 20 per cent of total income. In fact, the latest ABS figures show that the bottom fifth has just seven per cent of the income, whereas the top fifth has more than 40 per cent. And in the four years to 2010, the shares of the four bottom-fifths fell by about 0.5 a percentage point each, allowing the share of the top fifth to rise by two per cent. So why, under both Liberal and Labor governments, has there been this marked increase in inequality?

Economic writer Ross Gittins in last year's ACTU Whitlam lecture outlined this recent data and attempted to answer the question. He said:

No one can say with any certainly. Various factors could have contributed: the resources boom and the booming sharemarket before the global financial crisis, the continued rise in executive and finance-sector salaries and maybe the succession of income-tax cuts that benefited people on high incomes.

But he went on to say:

It would be a mistake to conclude, however, that all families with income sufficient to put them in the top 20 per cent have benefited equally. It’s far more likely that the closer you are to the top of that 20 per cent the better you’ve done. It’s even possible that the share of people in the second-top 10 per cent has declined, as have the shares of the bottom 80 per cent of households.

But it gets worse. According to Gittins, research using income tax statistics show that the top 120th of a per cent of individual taxpayers account for about two per cent of total taxable income. Let's just reflect on that. Someone in the top 0.05 per cent of taxpayers has income about 40 times their proportionate share. Gittins also says:

The top 10th of a per cent accounts for 3 per cent, the top half a per cent for 6 per cent, the top 1 per cent for 9 per cent, the top 5 per cent for 21 per cent and the top 10 per cent for 31 per cent

So in fact it is the growth in income of the very top group of people in the wealthiest 20 per cent of the income band that is driving this growth in inequality. According to Gittins this means:

The shares of these top earners were declining until the early 1980s, but have increased since then, with the share of the top 10 per cent growing from 25 per cent to 31 per cent. Why has this happened? I think it would have to do mainly with the explosion in executive salaries and the phenomenal expansion of the phenomenally paid financial services industry.

While experiencing a short dip post the global financial crisis, executive salaries are continuing to soar, driving up this inequality in Australia. This skyrocketing of executive pay is based on the obscene levels of incentives and bonuses for company executives and has fuelled unsustainable business practices that resulted in the loss of jobs and shareholder wealth. Let's look again at the figures.

The average total remuneration of a chief executive of a top-50 company listed on the Australian Securities Exchange in 2010 was $6.4 million. This makes the average CEO's total pay packet almost 100 times that of the average worker. This is an obscene difference in remuneration. Why should anyone earn 100 times more than the average worker? Do they work 100 times as hard? Are they carrying out work that is a hundred times more risky, or difficult or dangerous? The reality is executives are being paid this amount because they are able to get away with it and they have been allowed to get away with it.

We can get a greater sense of how unfair this difference is by looking at the increases in executive pay over last financial year. Executive pay rose by an average of almost $1 million, the equivalent of an extra $18,000 per week. Over the same period, the annual average wage for a full-time worker rose by just $3,200, or $62 a week—$18,000 a week compared with $62 dollars a week. Yet we are constantly hearing lectures about the importance of wage restraint and the worry of a wages break-out amongst working people. What does one even do with an extra $18,000 a week?

This has been a problem for some time with base pay for executives rising by 130 per cent from 2001-2010, while in the same period average weekly earnings only rose by 52 per cent. Inflation over the same period was just 28.6 per cent. Again, we see this incredible difference with average workers gaining modest increases in their pay just keeping above inflation, while the top end of town is raking it in, with a whopping doubling of their pay over the last decade.

Over the previous financial year across the economy, profits also soared by 27.5 per cent. This imbalance is even greater in selected industries. Gross operating profits in mining have risen by 60.6 per cent, while wages grew by just 3.8 per cent. Construction profits rose by 55.5 per cent, but wages by just 2.9 per cent. And profits in the information, media and telecommunications sector grew by 10 per cent—five times more than wages. Company profits as a share of national income are now back to the record levels of 2008, while the wages share is the lowest since 1964. So there has been no shortage of funds to fund wage increases for workers, but corporations have instead funded executive salaries. This is unfair and unsustainable, and it is little wonder that the community is angry when they are doing it tough and being asked to engage in wage restraint when corporate leaders are filling their own pockets.

Here are some examples from last year of incredible increases in CEO pay from 2009 to 2010. Tom Albanese, CEO of Rio Tinto, got $9,039,000, an increase of 328 per cent. Don Voelte from Woodside Petroleum is on $8,343,339—also a huge increase. Ralph Norris, CEO of the Commonwealth Bank, modest but still a nice little earner, is on $16,157,746, an increase of 75 per cent. And the list goes on: David Knox at Santos, $5 million, an increase of 63 per cent; Marius Kloppers on $11 million, and so on. Something needs to be done to rein in these fat-cat salaries and excessive profits. Something needs to be done to address this growing inequality. The Greens have been seeking action on executive remuneration for some time. We have proposed real and practical measures to limit executive pay. We have moved a number of amendments to the Corporations Act in the past to implement our proposals. The most recent was at the end of 2009 to the Corporations Amendment (Improving Accountability on Termination Payment) Bill.

The measures we have proposed include: a cap on total executive remuneration of $5 million to stop the excesses of the past decade but also to ensure that the majority of executives continue to enjoy attractive remuneration packages. The limit that we have proposed is more than 10 times the Prime Minister's salary. We have also proposed: a remuneration formula to set executive pay at 30 times the average employee's wage; a top marginal tax rate of 50 per cent for incomes over $1 million a year; and a binding shareholder vote on company remuneration policy. The policy would set minimum standards to be included in remuneration packages which would, in turn, place limits on the size of remuneration packages covering base salaries, performance and termination pay and non-cash rewards. We believe that these measures are sensible and, if implemented, would have already started to rein in excessive executive salaries.

Unfortunately, the government and the opposition have not had the courage to take strong action on this problem and support our measures. Instead, we have before us this bill today. The bill implements a number of the recommendations from the Productivity Commission's report from 2009on executive remuneration. The key measure in the bill is the two strike non-binding vote of shareholders on the remuneration report leading to a spill of the board.

The first strike will occur when a company's remuneration report receives a no vote of 25 per cent or more. When this occurs, the company's subsequent remuneration report, the next year, must include an explanation of the board's proposed actions in response to the no vote or an explanation of why no action has been taken.

The second strike occurs when a company's subsequent remuneration report receives a no vote of 25 per cent or more. When this occurs, shareholders will vote at the same AGM to determine whether the directors will need to stand for re-election. If this spill resolution passes with 50 per cent or more of eligible votes cast, then the spill meeting will take place within 90 days.

While this is a step forward from where we are now, the Greens would prefer a binding vote of shareholders on remuneration policy which would set limits and give the shareholders that ability to configure payments in accordance with common sense. Under the provisions in the bill the potential for a spill of the board takes two votes at subsequent annual general meetings of shareholders expressing their concern with the remuneration of executives. There is, therefore, a significant amount of time between shareholders expressing displeasure and being in a position to act. During this time CEOs can continue to be paid obscene salaries.

We understand the arguments put by the Productivity Commission against a binding vote, including that a binding vote would provide significant practical difficulties such as companies not being able to finalise a contract with an executive until shareholder approval was obtained, and could result in a deadlock arising between shareholders and the board regarding the appropriate levels of executive remuneration. We appreciate that the government's position is to encourage cultural change in large corporations regarding executive remuneration. However, we continue to hold reservations that these measures will in practical terms work to stop the excessive salaries that I have outlined today. We will be watching carefully how this process works in practice and the extent to which it does create cultural change and rein in executive remuneration packages.

The Greens support the other measures in the bill to increase transparency with regard to executive remuneration. These include: increasing transparency and accountability with respect to the use of remuneration consultants, in particular, that remuneration consultants report to non-executive directors or the remuneration committee; addressing conflicts of interests that exist with directors and executives voting their shares on remuneration resolutions. We agree that directors and executives with voting shares should not be allowed to vote on the remuneration reports. We also support: ensuring that remuneration remains linked to performance by prohibiting hedging of incentive remuneration; requiring shareholder approval for declarations of no vacancy at an annual general meeting; prohibiting proxy holders from cherry-picking the proxies they exercise by requiring that any directed proxies that are not voted default to the chair, who is required to vote the proxies as directed; and reducing the complexity of the remuneration report by confining disclosures in the report to the key management personnel.

These measures also go to implementing some of the principles of executive remuneration agreed to by the G20 in September 2009. They will improve the way companies go about determining remuneration for executives, and the increased transparency of these measures is to be welcomed. However, this must be just the first step. Unless we move to serious caps and stronger regulation of executive salaries we will not begin to address the growing inequality we are experiencing in this country.

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